Investors in the Lottoland sponsored lottery jackpot insurance-linked securities (ILS) and collateralised reinsurance are set to be on the hook for some level of payout after a EUR 90 million win by a customer triggered payouts through the firms unique Fortuna PCC insurance model.
Lottoland is one of the secondary lottery providers that utilises the insurance-linked securities (ILS) market as a capacity provider to back its collateralised reinsurance protection.
The firm renewed its Fortuna collateralized reinsurance or insurance-linked securities (ILS) transaction at an upsized EUR 120 million last year, making it the largest such reinsurance deal in gaming industry history.
Lottoland also set up its own insurance company in Gibraltar, Fortuna Insurance PCC Limited, to provide its own issuing vehicle for future collateralised reinsurance and insurance-linked securities (ILS) transactions.
The innovative insurance and risk management facility is now set to demonstrate its worth for Lottoland, as the secondary lottery operator reported that a customer in Germany won a EuroJackpot top prize of €90 million on June 1st 2018, the equivalent £79 million or US $106 million.
The company said this is the largest jackpot pay-out for any online gambling company in the world, and the biggest Lottoland has paid in its five-year history.
Lottoland said that the prize will be paid out through the firms insurance model, with the Fortuna PCC that accesses efficient risk capital through a series of financial instruments including ILS and collateralised reinsurance, alongside traditional reinsurance, the vehicle bearing the claims.
That will flow through to the investors backing the Fortuna collateralised reinsurance ILS notes, which are structured into four layers of lottery jackpot risk and feature expected losses in a range from 2% to 14%, while the pricing multiples range from 1.6 to 2.1 times the expected loss.
The Fortuna collateralised arrangement provides Lottoland with EUR 125 million of lottery jackpot risk transfer. It’s not clear whether this will eat through all layers of the collateralised reinsurance arrangement, but it seems likely that at least the riskier layers will pay out in full. We’re told that ILS investors could pay out as much as half of the EUR 90 million claim.
We understand that some of the EUR 90 million jackpot will also fall to traditional insurance markets that back Lottoland as well.
Lottoland is the only lottery provider with its own insurance company, the Fortuna PCC, which makes its access to reinsurance and the ILS markets more cost-effective and efficient.
The capital markets investors backing Fortuna through the collateralised ILS deal will now pay their share of this record-breaking jackpot, demonstrating the value of ILS capital and risk transfer to the capital markets.
Lottoland CEO Nigel Birrell commented. “This record €90 million win is a break-through moment both for our business and the industry as a whole, as it is the largest jackpot pay-out ever across the online gaming and lotto industry. We look forward to breaking more records in the future.”
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